f 

•    -ST 


''MA 


MEASURE  OF  VALUE 


ESTABLISHED  BY  LAW, 


SHOULD  BE  USED  AS  CURRENCY, 


RATHKK  THAN   BANK  PROMISES. 


By    HON.    JOHN    NESMITH. 


LOWELL  : 
STOXK    A    HUSK,    I'IMNTKKS.    VOX  POPULI   OFFICE,   21   CENTRAL   STREET. 

1868. 


EEASOKS 


MEASURE  OF  VALUE 


ESTABLISHED  BY  LAW, 


SHOULD  BE  USED  AS  CURRENCY, 


RATHER  THAN  BANK  PROMISES. 


BY  HON.  JOHN  N  E  S  M  I  T  H 


LOWELL : 
STONE   &   HUSE,  PRINTERS,  VOX  POPULI  OFFICE,   21   CENTRAL   STREET. 

1868. 


THE  STANDARD  OF  VALUE. 


The  requirements  of  trade  and  commerce  have  com- 
pelled all  governments  to  fix  certain  legal  standards  of 
weight,  measurement,  &c. ;  such  as  a  pound,  a  gallon,  a 
yard.  The  same  requirements  have  compelled  the  estab- 
lishment of  standards  of  value  to  be  used  as  currency,  as  a 
franc,  a  shilling,  a  dollar,  &c.  These  standards  are  all  fixed 
by  law ;  the  pound  for  the  weighing  of  articles,  the  yard  for 
ascertaining  length  and  breadth,  the  gallon  for  the  measure- 
ment of  liquids,  and  the  dollar  for  the  measurement  of 
value.  It  is  ot  no  consequence  of  what  materials  the 
standards  are  made,  provided  their  measurement  always  re- 
mains the  same.  Who  cares  whether  his  sugar  is  weighed 
by  brass  or  iron  ?  or  his  molasses  measured  in  copper  or 
tin?  And  every  one  is  equally  indifferent  what  he  receives 
as  a  measure  of  value,  so  long  as  the  law  compels  every- 
body else  to  receive  the  same  measure  from  himself,  either 
in  payment  of  any  debt  he  may  owe,  or  for  any  purchase 
he  may  make. 

All  these  standards  of  weight,  value,  &c.,  may  be 
properly  considered  the  tools  and  implements  of  trade,  no 
more,  no  less.  To  legislate  that  all  these  tools  and  imple- 
ments of  trade  should  be  made  of  gold,  would  be  much 
such  wisdom  as  to  enact  a  law  requiring  all  farming  tools  to 
be  manufactured  of  gold.  To  take  one  of  these  tools  of 
trade,  say  the  measure  of  value,  and  compel  it  to  be  made 
,of  gold  is  little  more  wise  than  to  compel  every  plough 


2OO3550 


to  be  of  gold.  Of  all  the  standards  created  by  law 
for  the  convenience  of  trade,  no  one  is  more  necessary  and 
more  important  than  the  measure  of  value.  Its  use  is 
required  in  the  purchase  and  sale  of  all  property,  and  no 
transfer  of  property  takes  place  without  the  employment 
of  it,  or  that  of  some  substitute  for  it.  This  substitute  is 
ordinarily  some  obligation  to  pay  in  the  legal  measure  of 
value,  at  some  future  time;  hence,  when  currency  is 
scarce,  credits  are  used  in  its  place.  Of  all  the  measures 
of  value  that  have  been  used,  no  one  has  been  found  to  be 
so  convenient  as  engraved  paper  currencj'.  The  business 
of  no  trading  community  is,  can,  or  will  be  carried  on 
without  paper  money.  If  government  does  not  furnish  it, 
the  demand  will  be  supplied  by  the  existing  banks  or 
bankers ;  and  their  promises  to  pay  will  be  received  and 
paid  as  money,  thus  giving  the  community  as  their  actual 
currency  promises  to  pay,  instead  of  the  real  standards  of 
value  fixed  by  law. 

If  the  banks  or  bankers  furnish  the  currency  used, 
their  customers  must  pay  the  interest  on  it.  If  the  govern- 
ment furnish  it,  the  country  is  saved  from  taxation  to  an 
extent  equal  to  the  interest  on  the  amount  of  currency  in 
use.  The  savings  from  this  source  alone,  if  annually  in- 
vested in  our  national  securities  as  a  sinking  fund,  would 
pay  off  our  entire  indebtedness  much  sooner  than  many 
persons  believe  this  desirable  result  attainable.  Under  our 
Republican  government,  why  should  this  enormous  amount 
be  given  to  the  few  and  taken  from  the  many  ?  In  Eu- 
rope, where  laws  have  ever  been  made  by  the  few.  and 
generally  shaped  to  promote  the  interest  of  that  few,  such 
legislation  may  be  expected. 


The  power  to  issue  a  paper  currency  must  be  used, 
and  it  is  probably  safe  to  say  it  must  be  used  either  by  the 
banks,  or  directly  by  the  officers  of  the  government  acting 
under  the  authority  of  laws  passed  by  the  concurrence  of 
both  branches  of  Congress,  and  the  President.  Will  it 
not  be  as  safe  to  trust  this  power  to  Congress,  where  all 
changes  in  the  amount  of  the  currency  must  be  discussed 
before  the  whole  country,  and  where  they  will  be  subject 
to  the  separate  action  of  the  three  branches  of  government 
before  they  can  be  effected,  as  it  will  be  to  entrust  it  to 
the  directors  of  fourteen  hundred  banks,  looking  only  to 
their  own  private  interests,  and  having  no  care  for  the 
public  welfare,  and  of  whose  decisions  the  public  know 
nothing  ?  When  the  volume  of  the  currency  is  regulated 
by  Congress,  all  the  proceedings  are  public,  and  every- 
body is  advised  when  and  to  what  extent  it  is  to  be  in- 
creased or  diminished,  and  every  one  can  govern  himself 
accordingly.  Every  one  who  remembers  with  what  anx- 
iety the  fluctuation  of  the  London  money  market  was 
watched,  before  paper  became  a  legal  tender,  lest  gold,  the 
basis  of  our  currency,  should  be  taken  abroad,  and  a  pres- 
sure of  the  money  market  produced  in  consequence,  can 
testify  to  the  advantages  of  having  some  legal  standard  of 
value  established  as  currency  which  would  not  be  liable 
to  disturbance  by  every  shipment  of  gold. 

A  currency  regulated  by  the  ebb  and  flow  of  gold 
into  and  from  the  country,  must,  of  necessity,  be  constantly 
fluctuating.  Every  shipment  or  arrival  of  gold  is  watched 
with  intense  interest  by  all  who  are  dependent  on  bank 
discounts. 


All  will  agree  that  stability  of  price  is  one  of  the 
most  important  things  to  a  business  community,  and  that 
this  is  only  to  be  obtained  by  the  use  of  a  currency  which 
does  not  fluctuate,  but  continues  the  same  in  amount  from 
year  to  year.  Such  a  currency  would  pass  quickly  from 
hand  to  hand  when  business  was  brisk,  and  more  slowly 
when  it  was  dull,  thus  supplying  the  necessary  wants  of 
the  community  without  changing  the  amount  in  use.  The 
advantages  of  such  a  currency  were  clearly  shown  during 
the  late  war  at  the  time  when  the  embarrassments  of  the 
London  money  market  caused  the  shipment  of  forty  mil- 
lions of  gold  in  the  short  space  of  about  twenty  days. 
This  extraordinary  demand  was  met  without  in  the  least 
disturbing  the  business  of  this  country.  What  would  have 
been  the  consequences  of  such  a  call  if  our  actual  circula- 
tion had  been  composed  of  bank  promises  to  pay  in  gold  ? 
Clearly  one  of  two  things  must  have  taken  place  ;  either 
the  banks  must  have  refused  all  accommodation  to  their 
customers,  and  caused  the  failure  of  many  requiring  loans, 
or  they  must  have  refused  to  pay  their  bills  in  gold. 
Usually  both  of  these  things  would  happen  in  such  cases. 
First  the  banks,  from  a  desire  to  pass  the  crisis  without 
stopping  specie  payments,  would  refuse  loans,  and  would 
continue  this  course  long  enough  to  create  a  panic.  When 
this  took  place  there  would  be  a  rush  upon  the  banks  for 
specie  by  depositors  and  bill  holders.  Under  such  circum- 
stances the  banks  have  always  been  obliged  to  decline 
paying  their  promises  in  gold,  arid  their  action  has  ever 
met  the  approval  of  the  public. 

Much  of  the  confusion  in  the  public  mind  on  this 
subject  arises  from  a  misconception  of  the  nature  and 


functions  of  a  paper  standard  of  value  established  by  laws 
as  a  legal  tender.  Grave  and  learned  senators,  as  well  as 
writers  for  the  daily  press,  make  the  mistake  that  it  is 
simply  a  promise  to  pay.  Nothing  can  be  more  erroneous 
than  this  opinion.  It  would  perform  all  the  work  required 
of  it  equally  well  if  the  paper  used  as  the  legal  tender  had 
on  it  only  the  vignettes  necessary  to  prevent  counterfeiting, 
and  the  words  and  figures  needed  to  denote  its  value. 
The  legal  tender  is  not  taken  or  received  with  the  wish  or 
expectation  of  its  being  converted  into  gold  or  bonds,  but 
it  is  taken  and  received  because  everything  offered  for  sale 
can  be  bought  with  it,  and  because  every  debt  must  be 
paid  by  it.  On  this  fallacy,  namely  :  the  necessity  of  a 
convertible  currency,  rest  many  of  the  arguments  against  a 
paper  legal  standard  of  value  ;  and  this  being  purely  an 
assumption,  having  no  foundation  in  fact,  it  follows  of  course 
that  all  arguments  resting  on  it  must  be  considered  as 
worthless. 

Another  assumption  of  the  same  character  often  made, 
is  that  our  currency,  or  measure  of  value,  must  be  fixed  of 
the  same  material  used  in  other  countries,  because  this 
course  will  facilitate  the  payment  of  balances  arising  in 
our  commerce  with  other  countries.  In  answer  to  this  I 
think  it  may  be  safely  said  that  our  currency  as  currency, 
never  has  been  ami  never  will  be  used  for  such  payments. 
When  a  balance  against  this  country  arises  in  the  course  of 
trade,  it  must  be  paid  in  some  commodity  of  real  value,  and 
not  in  one  to  which  we  have  affixed  by  law  an  artificial  value, 
as  we  have  to  our  currency,  whether  it  be  composed  of 
metal  or  paper.  When  our  coin  is  taken  abroad  it  does 
ss  into  the  circulation  of  the  countries  to  which  it  is 


taken  until  it  is  re-coined,  consequently  it  has  no  greater 
value  than  ingots. 

For  the  payment  of  balances  arising  against  this 
country,  merchants  ship  cotton,  wheat,  or  other  produce  of 
our  soil,  because  they  think  their  chance  of  profit  greater 
than  their  risk  of  loss.  Bankers  and  others  not  willing  to 
take  any  chance  of  loss,  ship  gold,  since  it  has  a  value  fixed 
on  it  in  other  countries  by  law;  this  value  they  know 
before  shipment,  and  buy  it  as  a  commodity,  whether  it  be 
in  coin  or  ingots,  regulating  the  price  paid  by  its  legal 
value  in  the  country  to  which  it  is  shipped.  This  has 
always  been  the  case,  but  it  has  been  more  apparent  since 
paper  has  been  a  legal  tender.  That  all  balances  arising  in 
the  course  of  trade  between  this  and  other  countries,  must 
be  paid  in  real  values,  and  not  in  our  own  currency,  to 
which  we  have  affixed  by  law  an  arbitrary  worth  must  be 
beyond  a  doubt.  In  this  connection  it  may  be  well  to 
consider  how  far  it  is  for  the  interest  of  this  country  to 
legislate  in  such  a  manner  as  to  make  it  a  certainty,  that 
every  shipment  and  every  importation  of  gold  must  effect 
the  quantity  of  currency  in  use. 

All  must  allow  that  the  prices  of  commodities  are 
governed  by  the  amount  of  currency  that  is  in  circulation 
where  it  is  used,  and  that  the  effect  on  prices  is  the  same 
whatever  material  is  employed  as  currency.  Of  course  the 
increase  or  diminution  of  bank  promises  affect  prices  in  the 
same  way  that  legal  tenders  do.  If  both  circulate  to- 
gether it  is  the  total  amount  of  both  that  constitutes  the 
currency.  If  the  aggregate  is  increased,  prices  will  ad- 
vance; if  diminished,  they  will  fall.  Taking  out  of  circu- 
lation the  entire  amount  of  legal  tenders,  and  filling  their 


9 

places  with  bank  promises,  will  not  change  prices  in  the 
least  so  long  as  the  amount  of  circulation  remains  the 
same. 

Every  one  will  admit  the  advantages  of  having  a 
currency  not  subject  to  fluctuation  in  the  amount  in  use,  by 
the  payment  of  balances  arising  against  this  country.  But 
we  are  so  wedded  to  old  modes  and  opinions  that  many  will 
think  it  impossible  to  create  such  an  one.  But  why  should 
they  think  so  ?  Even  admitting  that  we  must  have  as  a 
standard  of  value  something  of  intrinsic  worth,  would  it 
not  be  better  to  take  some  metal  not  made  a  legal  tender  by 
other  countries,  than  to  take  gold,  the  only  article  the  value 
of  which  is  fixed  by  law  in  foreign  countries,  and  sure  to  be 
first  taken  from  us  because  its  value  is  so  fixed  ?  Were 
our  legal  standard  of  any  metal,  the  worth  of  which  is  not 
legally  fixed  abroad,  there  would  be  no  more  inducement 
to  export  it  in  payment  of  any  balances  against  the  country, 
than  there  would  be  to  export  any  other  article.  But  if 
gold  is  made  the  standard  it  is  sure  to  be  the  first  article 
sent  abroad,  and  the  derangement  of  the  paper  currency 
founded  on  it  must  follow  of  course.  All  this  derangement 
could  be  avoided  by  taking  some  other  material  for  the  legal 
standard. 

One  of  the  most  important  qualities  of  a  legal 
measure  of  value  should  be  its  unchangeallcness.  When  a 
metal  of  any  kind  is  taken  as  a  standard,  that  standard 
will  always  have  two  values,  the  legal  one,  and  the  value 
that  it  possesses  as  a  metal  useful  in  the  arts.  The  paper 
standard  of  value  is  not  subject  to  such  an  objection ;  as  it 
has  no  value  but  what  has  been  given  to  it  by  the  law,  it  can 

ujbe  used  for  any  other  purpose  than  that  of  currency  ; 


10 


and  it  will  never  be  sent  abroad  because  it  will  be  of  no 
worth  if  sent.  It  must  always  be  an  evil  to  a  country  to 
have  its  currency  sent  abroad  instead  of  its  productions  ; 
and  this  evil  is  greatly  increased  when  the  actual  currency 
of  the  country  is  paper  issued  by  banks  promising  to  pay 
in  the  metal  standard.  The  shipment  of  every  metal 
dollar  causes  a  reduction  of  the  actual  circulation  to  at 
least  four  times  that  amount,  thus  causing  a  constant  fluc- 
tuation in  the  worth  of  property,  according  to  the  ebb  and 
flow  of  the  metal  which  we  have  been  so  unwise  as  to  make 
our  standard  of  value. 

In  discussing  this  question  it  must  always  be  kept  in 
mind,  that  whatever  may  be  fixed  upon  as  the  legal  stand- 
ard of  value,  or  legal  tender,  the  actual  currency  used  by 
the  people  in  all  their  transactions  will  be  paper.  If  gold 
is  fixed  upon  as  the  legal  tender,  the  currency  will  be  bank 
promises  to  pay  gold.  If  paper  issued  by  Government  is 
made  the  legal  tender,  and  the  quantity  issued  is  sufficient 
for  the  purpose,  then  the  reality,  and  not  the  promise  to 
pay  it,  will  be  employed  in  the  business  transactions  of  the 
country,  and  the  failure  of  men  or  banks  will  be  of  no 
consequence  to  the  holder  of  the  currency.  Past  experience 
has  shown  that  repealing  the  law,  making  greenbacks  a 
legal  tender,  would  not  increase  the  use  of  gold  in  the 
business  transactions  of  the  country.  In  the  place  of 
greenbacks  we  should  have  bank  notes ;  and  the  amount 
of  these  in  circulation  would  always  very  much  exceed  the 
amount  of  gold  in  the  banks. 


A     000019086     8 


